Google To Acquire Motorola Mobility for $12.5 Billion

In a stunning move that could upend the smartphone market, Google today said it will acquire phone handset maker Motorola Mobility Holdings Inc. for $12.5 billion in cash.

Google is paying a 63 percent premium for Motorola Mobility based on its Friday closing price, representing the largest acquisition in Google's history. The boards of both companies have approved the deal.

"Motorola Mobility's total commitment to Android has created a natural fit for our two companies," said Google CEO Larry Page in a prepared statement. "Together, we will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners and developers."

By acquiring Motorola Mobility, Google will become a key provider of handsets, but it will also be in direct competition with other OEMs who provide hardware based on the Android platform such as HTC, LG Electronics and Samsung. Google said it will operate Motorola Mobility as a separate business.

"This acquisition will not change our commitment to run Android as an open platform," Page said in a blog post. "Motorola will remain a licensee of Android and Android will remain open. We will run Motorola as a separate business. Many hardware partners have contributed to Android's success and we look forward to continuing to work with all of them to deliver outstanding user experiences."

By acquiring Motorola Mobility, Google picks up a hefty patent portfolio, a key factor in Google's interest in the company. "Our acquisition of Motorola will increase competition by strengthening Google's patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies," Page said. (See "Google: Android Lawsuits Part of 'Hostile' Campaign by Microsoft, Others.")

If the deal goes through, Google will be thrust into the ongoing intellectual property dispute between Motorola and Microsoft. In that lawsuit, Microsoft contends Motorola has infringed on nine patents.

While Google said the acquisition of Motorola will strengthen the ecosystem for Android, it remains to be seen whether third-party OEMs align closer with Microsoft. "By entering into the hardware business, Google risks significantly weakening other OEMs' commitment to the Android platform going forward," said Forrester analyst Charles Golvin in a blog post.

Google's plan to acquire Motorola is pending regulatory approval both in the United States and Europe, as well as approval of Motorola Mobility's shareholders. Google said the deal should close by early 2012.

Shares in Research In Motion and Nokia were trading higher Monday morning in hopes that they, too, would become takeover targets.

Jeffrey Schwartz is editor of Redmond magazine and also covers cloud computing for Virtualization Review's Cloud Report. In addition, he writes the Channeling the Cloud column for Redmond Channel Partner. Follow him on Twitter @JeffreySchwartz.